Keep an eye out for hidden fees

November 12, 2006|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Fees slapped on your money are the bane of the average investor.

Extra costs can be slipped in so many different ways by investment firms that the investor often doesn't realize it. Some represent valid costs of doing business, but others are tacked on or increased because it can be done so effortlessly.

Fees are alive and well in 2006, with some on the rise. But fierce competition is having an effect, with a number of these costs eliminated, reduced or easier to avoid.

Your best game plan still is to shop carefully and knowledgeably for the least-expensive investments and best loan terms, consolidate accounts in one place if it means better deals from a higher balance, and pay all bills on time with no bounced checks.

Bank of America Corp. has eliminated fees on millions of its stock-trading accounts by giving 30 free online stock trades a month to those who keep at least $25,000 with the bank. With newly launched broker offering 40 free trades a month to all customers, pricing pressure has intensified on online brokers. Some had tried free trades in the past but subsequently dropped them.

Charles Schwab brokerage and banking clients now qualify for discounts on mortgage and home-equity products that had been available only to favored clients with more than $250,000 in combined bank and brokerage balances.

"Pricing is a pendulum, and it is swinging toward encouraging people to do everything under one roof," said Lauren Bender, manager of the retail securities and investments group in the New York office of Celent LLC.

"Improved technology and deregulation are allowing these firms to go after the full financial needs of individuals."

Before moving money, think about how many trades you're likely to make and the quality of service you expect.

The mutual fund industry is reducing fees too.

"We're seeing mutual fund expenses come down in a meaningful way, though there is still a lot of room left," said Russel Kinnel, director of mutual fund research for Morningstar Inc. in Chicago. "The average retail investor is now paying an annual expense ratio of 0.91 percent, down from 0.97 percent in 2004 and 0.95 percent in 1990."

Expense ratio is the percentage of assets deducted each year for fund expenses, including management fees, administrative fees, operating costs and all other asset-based costs incurred by the fund. It is deducted from average net assets and accrued daily.

In ranking average annual expense ratios of major mutual fund companies, Kinnel found Vanguard was at 0.22 percent; Dodge & Cox at 0.53 percent; Fidelity at 0.75 percent; American Funds at 0.76 percent; Janus at 0.87 percent; Franklin at 0.9 percent and Van Kampen at 1.15 percent.

But there's a scandal over expenses. It involves kickbacks paid to mutual fund companies by Bisys Group Inc., a third party providing back-office services to mutual funds. Bisys charged fund investors extra for its services and then kicked back money to fund companies that should have belonged to investors.

Bisys settled charges with the Securities and Exchange Commission, and the SEC is focused on 27 yet-unnamed mutual fund companies that may have accepted kickbacks.

"This helps to explain why, with all the economies of scale and transaction efficiencies these days, fund shareholders haven't benefited as much as you'd expect," Kinnel said. "Efficiencies became a profit center."

Not all costs are going down. Bank fees for bounced checks and use of automated teller machines other than those of your own bank have set new highs.

The bounced-check fee averages $27.40 nationwide, while the average ATM surcharge for non-account holders is $1.64, according to Some banks are reducing or eliminating the charge to their customers who use another bank's ATM.

"Bank fees aren't getting any better, but consumers do have `end runs' around those fees thanks to an increase in free checking accounts and the availability of online access," said Greg McBride, financial analyst with in West Palm Beach, Fla.

"More than 60 percent of the non-interest-bearing bank accounts we surveyed have no monthly service fee and no minimum balance requirement, while 98 percent of banks offer online access for no charge."

The average balance requirement on an interest-bearing checking account is $2,660, and the yield is incredibly low, McBride said, which means that an interest-bearing checking account is not an efficient use of your money.

In credit cards, the Government Accountability Office, Congress' watchdog arm, recently released a study indicating that contract disclosure to consumers about what triggers higher penalties or rates is hopelessly buried in text.

"Penalty fees on cards, which are separate from the transactional fees at merchants, represented 30 percent of the $55 billion in total fee income of card issuers last year," said Robert Hammer, chairman of the Los Angeles-based R.K. Hammer bank card advisory firm. "This trend has been up the last several years, and I expect it will continue to go up."

Andrew Leckey writes for Tribune Media Services.

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